Indian manufacturing sector witnessed a marginal drop in the month of November, which again reflects the volatility in the market. Just when things were falling into place, the Indian manufacturing industry dropped to 56.5 in November, from 57.5 in October, as per the HSBC India Manufacturing PMI. Let us find out what led to this drop and how it can affect the markets and investors.
Factors behind the slowdown
The recent government data suggest that India’s economic growth in the nation had declined in the July-September quarter to 5.4%, close to a two-year low and this slowed down the core sectors, which includes manufacturing at the top.
The market competition grew to an extraordinary level in the previous month along with extreme cost pressure, which again limited the manufacturing sector. However, positive demand kept it going and did not let it fall much. Even though the market condition is still robust, the big producers in November experienced slower business growth.
Coming to one of the most important reasons behind the sluggishness in the sector is the inflated prices. The manufacturers had to increase their prices due to inflated prices of all raw materials, labor, and even freight charges have increased. It has been the most substantial price rise since October 2013 and thus the effect has to be transferred to the customers. Input prices soared the most in the case of chemicals, leather, cotton, and rubber and on the other hand, output prices rose to an 11-year high in the month of November.
Retail Inflation at Its Peak
The inflated prices are the result of retail inflation, which is at its peak as per October data. In October, the CPI inflation rose to 6.21% even breaking the RBI’s upper circuit tolerance level of 6%, and a 14-month high. While the RBI is expecting the retail inflation to settle at 4.5% in this fiscal but it has made the manufacturing sector along with other sectors sluggish.
Factors Favoring the Manufacturing Sector and Outlook
While prices are inflated putting immense pressure on the sector, demand conditions are somehow turned favorable for the manufacturing sector. This is the prime reason for the sector to sustain even during such a challenging price rise. In November, the employment generated by the sector was also on track and continued to grow following the growth trend of the past nine months.
Manufacturing sector Outlook
Even though the sector has slowed down a little due to rising inflation, the outlook remains positive. Marketing initiatives and a wide number of new product launches to benefit the sector as anticipated by experts. The confidence of the investors in the Indian manufacturing sector has been boosted by the new expansion projects for different production units and demand to grow strongly in 2025
The HSBC report also suggests that the demand for Indian manufacturing products as international orders touched a 4-month peak in November amidst output slowdown due to rising prices.
Source: TheTimesOfIndia
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